Top 100: PAE owners see investment as path to profits

Platinum Equity, the new owners of 61-year-old PAE, have shown positive signs for the defense industry by talking about investments, rather than simply cutting costs to increase profits.

“Our new owners are sitting down and asking what can we spend money on today to invest in the business and bring results in 2017, 2018, 2019. That’s refreshing,” said John Heller, PAE’s CEO.

The company holds the No. 15 spot on the 2016 Top 100, with $1.9 billion in revenue.

In March, Platinum Equity completed its acquisition of PAE, a support services provider for the federal government, its allied partners and international organizations. Lindsay Goldberg owned PAE since 2011.

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Platinum Equity partner Louis Samson said PAE has experienced leadership with a strong track record for growth and Platinum wants to continue on that path.

“We are working closely with the management team to continue pursuing new opportunities to expand the business both organically and through prospective add-on acquisitions,” Samson said.

New opportunities

In 2014, PAE created its strategy to expand business and build on its long history in the federal market. 2015 became a watershed year for the company as it enlarged its presence in the national security industry. PAE acquired Global Security and Solutions, business unit of US Investigations Services, in January, and A-T Solutions in June. These companies’ highly skilled employees and their technology solutions gave PAE a foothold in identity management, biometric operations, analysis and comprehensive training.

“You have to have a commitment to make that investment. If you believe in the management team, if you believe in the capabilities of the business, if you believe in the relationships the business has with its customers, then putting money to work today should pay off two to three years down the road,” Heller said.

To further strengthen its platform, PAE hired Ken Myers, former Director of the Defense Threat Reduction Agency and U.S. Strategic Command’s Center for Combating Weapons of Mass Destruction. He now is president of the new National Security Solutions business unit, which was created after the acquisition of Global Security & Solutions and A-T Solutions.

In the past, PAE had a similar presence in the national security market, but had shifted away from it, Heller said. Deciding to return, the company needed capabilities for business, such as more employees with high security clearances, to access customer agencies that often are out of reach.

The acquisitions “rounded out the company and gave us the platform we wanted for organic growth,” he said.

In the coming years, PAE is poised for the next level of growth. Platinum too recognizes those opportunities, and its perspective on investment is necessary to reach that goal.

“Organic growth does not come without the proper investment behind it,” he said.

National defense abroad and at home

PAE has worked for decades around the globe on enduring support missions. It has 15,000 employees stationed in more than 60 countries. In recent years, the company has aided the government with efforts in Liberia to deal with the Ebola virus outbreak and supported it in highly unstable countries, like Iraq and Afghanistan.

Heller said companies, like PAE, are important for helping the U.S. and other nations remain stable and secure.

The United States needs its strong military to “balance the evils that are in the world” with peace and stability, he said. But the U.S.’s efforts to bring peace and stability won’t work solely with soldiers and guns. Humanitarian and diplomatic efforts are as necessary.

To carry out those efforts, companies, like PAE, can assist with nation-building, training leaders in the newly created governments, meeting those governments’ various needs, and aiding their overall sustainment.

While the military and foreign affairs agencies work abroad, non-military security agencies are addressing homeland defense issues within the U.S. These agencies are dealing with counterterrorism, immigration and border control, among other issues. The demands on these agencies are all increasing and will continue for the foreseeable future.

A company working with the F.B.I., the Homeland Security Department, Customs and Border Protection, and even local law enforcement agencies, will be required to “secure the security of the United States,” Heller said.

“I think the homeland defense market is very important, especially with the terrorist events that have happened over the last year on our soil,” he said.

Looking ahead

PAE’s work with the Defense Department will continue to expand in the coming several years. The company also has new opportunities in homeland defense, as the different aspects of security, security solutions, and levels of governments that needed such security services become more intertwined, Heller said.

He’s refreshed to have a mix of increasing business opportunities, an expanding footprint in the market and new owners who are willing to invest money in business strategies, instead of cutting costs.

“I think it’s a great sign to have private equity owners who are willing to look to the long-term in our industry because they see the opportunities,” he said.

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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